Tearing Up a $125M Check to Big Blue

SARATOGA, Calif. – Dave House still recalls the day he wrote IBM executives a $125 million check then tore it up in front of their eyes. It was perhaps one of the boldest moves in his 13 years as a top executive at Intel, a company known for its boldness.

In this second part of an interview at his home in the hills above Silicon Valley, House recounts his role in the "Intel Inside" campaign that put the x86 giant at odds with its OEM customers. Now the chairman of Brocade Communications, House also shares management lessons learned working under Intel's Andy Grove.

Dennis Carter developed the idea of branding Intel chips direct to consumers. House recalled the day Carter showed him an ad from Japan using an early version of the logo.

"I said, 'thatís Jap-lish,'" House said. "I pulled out stationary that said 'Intel, the computer inside,' I wrote 'Intel Inside' and put a circle around it and said that's better," he said.

House shows a plaque commemorating the Intel Inside program.

Then, Intel created a co-marketing campaign under which it would share the cost of advertising if OEMs used the new logo. As a sweetener, Intel initially changed its typical forecast of lowering CPU price per speed grade by 30 percent every year.

"We were in a particularly strong position regarding AMD, so I said, 'let's give them a forecast that shows 20 not 30 percent down, but offer a six percent rebate with the Intel Inside ad campaign," House said.

The Taiwanese [ODMs] loved that they could put Intel Inside on their systems, but Compaq and IBM hatred it because it was taking away their brand.

I couldn't get IBM or Compaq to sign up, but I could sign company checks, so I took a check of what they would have accrued [in the program] two weeks before the end of their quarter and I signed it right in front of them.

"I said this could be on your P&L or mine. They said they couldn't do it -- the IBM check was for like $125 million, and the margins on PCs by then were already razor thin," he said, recalling how he then tore the check up in front of them. "About three weeks into the next quarter, they signed up," he said.

Later, Intel was able to get industry publications to agree to a single rate card for Intel Inside ads, despite initial refusals from Ziff-Davis, one of the biggest publishers of the time, House said.

As the PC market and Intel's share of it grew, regulators cranked up antitrust investigations. "I wasn't there then, so I'm just an informed observer, but there were an awful lot of lobbying and PR battles," he said.

"In any sales situation when there's a shortage of product and a salesman has a quota, there's a temptation for the salesman to say, 'I'm having trouble getting allocation from the factory but if you work with me I can help,'" House said. "How you can control that, I donít know."

I'd say the Intel Inside campaign was the most successful markting campaign in the history of the semiconductor industry. Isn't that beyond dispute? Prior to that campaign few new or cared what processor was in their PC. But once the consumer was trained to look for the Intel Inside logo, all bets were off.

From a design engineers perspective"intel inside" was a game changer. In put the user/consumer in the design chain. Up until that time design engineers were able to go away and make all the decisions with respect to the components they would use to achieve the required function. From "AD-intel inside" somebody outside the design chain was involved in determining component selection, imposing a new design constraint. Perhaps a closer to home and different view of "branding to consumers".

When the Genuine Intel inside campaign had started, I remember visiting an Intel competitor in Silicon Valley. All the gals had on this interesting tee shirt and it looked just like the Intel add except it said "Genuine Attitude Inside" I liked. that.